The next trillion dollar market —— What Is SFT?

TL;DR

• ERC-3525 defines a new asset class, semi-fungible token (SFT), which is the same level standard as ERC-20 and ERC-721.

• Solv provides DeFi with financial NFT (Financial NFT) solutions for its existing market demands, and also reinterprets the value of NFT.

• SFT is suitable for expressing digital items that contain quantitative features and sometimes need to be merged or split.

• ERC-3525 will become one of the top token standards of the blockchain, exploring new space for Web3, digital finance and blockchain real economy applications.

What Is SFT？

SFT is the abbreviation of semi-fungible tokens. As the name implies, it is not difficult to see that SFT is between FT and NFT, which can be split and calculated, and has uniqueness.

Semi-fungible token (SFT) combines the features of fungible tokens and non-fungible tokens, and is more flexible than FT and NFT tokens. It can integrate the "two worlds", solve problems and open up new possibilities.

To better understand the concept of SFT, imagine a gift card in a shopping center: you can replace it with the same gift card of the same value, so it is a fungible asset. However, gift cards lose their value at the moment of use or expiration and cannot be exchanged into valid ones. This is the moment when gift cards become non-fungible assets.

SFT adopts the unique and flexible ERC-1155 standard, which can create tokens with multiple functions. In addition, a single smart contract can manage an unlimited volume of SFT tokens.

Solv Protocol Created by Chinese Team

Solv Protocol is a DeFi protocol that applies NFT to finance. With the original token standard of versatile NFT (vNFT), Solv provides DeFi with the solution of financial NFT for the existing market demands, and also reinterprets the value of NFT. Voucher is a financial NFT based on Solv, which can be considered a "container" of crypto assets.

According to the information listed on crunchbase, Solv Protocol was established in October 2020 by Mike Meng, Ryan Chow, Will Wang, headquartered in Singapore, and the founding team is all Chinese.

Solv Protocol is defined as "a decentralized platform for creating, managing and trading financial NFT" in the official project document called Solv Documentation. Among them, the concept of "financial NFT" refers to the NFT representing and proving financial rights and interests, which can also be understood as a financial instrument in the form of NFT.

The distinctive feature of financial NFTs compared with other NFTs is its quantitative attribute. In essence, it is a subclass of NFT called "computable NFT" by the Solv team.

The Solv team began to study computable NFTs in October 2020, and clearly defined and explained its concept, significance and core ideas. Based on this, they established a new crypto digital asset standard EIP-3525 - "versatile NFT", which is positioned as "computable NFT standard". vNFT is essentially an NFT that supports quantitative de_script_ion. The NFT minted on Solv based on this standard is called Voucher. Vouchers can be flexibly split and merged for linear operation, which is suitable for complex and customized financial needs.

Voucher's creation, management and trading are realized through Solv Marketplace, which is Solv's decentralized exchange. All transactions of Solv Protocol are executed on Ethereum and other public chains, but Solv Marketplace also retains some sales schemes of NFT exchanges with centralized mechanism.

What's the Use of ERC-3525

In the introduction of eips.ethereum.org, we learned that ERC-3525 is the standard for semi-fungible tokens. The smart contract interface defines an EIP-721 compatible token standard. This standard introduces the triple scalar model of the semi-fungible structure of<ID, SLOT, VALUE>tokens. It also introduces a new transfer model and an approval model that reflects the semi-fungible nature of tokens.

The SFT contains an EIP-721 equivalent ID attribute to identify itself as a universally unique entity, so that tokens can be transferred between addresses and approved to operate in an EIP-721 compliant manner.

SFT tokens also contain a “value“ attribute, representing the quantity and nature of tokens. The meaning of the "value" attribute is very similar to the meaning of the "balance" attribute of the EIP-20 token.

Each token has a "slot" attribute, which ensures that the values of two tokens with the same slot are considered fungible, thus increasing the fungibility of the token's value attribute. The EIP introduced a new token transfer model to achieve semi fungibility, including the value transfer between two tokens in the same slot and the value transfer from one token to one address, which is also the biggest particularity of SFT.

ERC-3525 defines a new asset class, semi-fungible token (SFT), which is the same level standard as ERC-20 and ERC-721.

ERC-3525 can be said to be a standard specially designed to express SFT. It has both the advantages of FT and NFT. It not only has rich information bearing and visual representation capabilities like NFT, but also has quantitative characteristics like FT, allowing flexible splitting, merging and mathematical calculation.

On September 3, 2022, the last call of the draft semi-fungible token standard ERC-3525 will end, which means that ERC-3525 will become the industry standard. It is expected that this will also be the first token standard adopted by Ethereum after upgrading and merging.

The standard was proposed by Solv Protocol, which defines "semi-fungible token (SFT)" for the first time. ERC-3525 has both the quantitative ability of ERC-20 and the de_script_ive ability of ERC-721, aiming to create an ideal semi-fungible token.

ERC-20 opened the fungible token (FT) market in 2016, and the FT asset scale has reached hundreds of billions of dollars. ERC-721 opened the non-fungible token (NFT) market in 2018, and the scale of NFT assets has reached tens of billions of dollars.

Based on ERC-3525, developers can easily support the application scenarios listed above, which are not only the infrastructure of Web3 and the metaverse, but also an important bridge to combine the blockchain with the real economy. Its application potential can be said to be unlimited. In the long run, SFT will certainly develop into a huge industry with a scale of trillion dollars.

How To Implement SFT

Tokenization is one of the most important trends in the use and control of digital assets in cryptocurrencies.

Traditionally, there are two ways to do this: fungible tokens and non-fungible tokens. Fungible tokens typically use the EIP-20 standard, where each unit of the asset is the same. EIP-20 is a flexible and effective method to operate fungible tokens.

The non-fungible token is mainly EIP-721 token, which is a standard that can distinguish digital assets according to identity.

However, both have obvious shortcomings.

For example, EIP-20 requires users to create a separate EIP-20 contract for each individual data structure or combination of customizable attributes. In practice, this poses the need to create a large number of EIP-20 contracts. On the other hand, EIP-721 tokens do not provide quantitative characteristics, which greatly weakens their computability, liquidity and manageability. For example, if we want to use EIP-721 to create financial instruments such as bonds, insurance policies or ownership plans, there is no standard interface for us to control the value. For example, we cannot transfer the rights and interests in the contracts represented by some tokens.

A more intuitive and direct way to solve the problem is to create a semi-fungible token with the quantitative characteristics of EIP-20 and the qualitative attributes of EIP-721. The backward compatibility of the semi-fungible token with EIP-721 will help to leverage existing infrastructure already in use and lead to faster adoption.

Applicable Scenario:

In fact, SFT is suitable for expressing digital items that contain quantitative characteristics and sometimes require merging or splitting operations. Typical examples are financial instruments, advanced financial contracts, land, and all standardized commodities with an inherent quantity.

For example, two bonds with the same conditions and a face value of RMB500 each are equivalent to one bond with the same conditions and a face value of RMB1,000.

For another example, two virtual lands can be merged into one under certain conditions. In the real economy, two solar panels of the same model with an effective area of 20 square meters each can be considered a 40 square meter solar panel in management accounting. Coal of the same model in two wagons can be counted as the same batch by tonnage.

This type of goods is ubiquitous in Web3, DeFi and the real economy, especially in the management, statistics and financial scenarios. These items are best expressed in SFT.

In addition, ERC-3525 has strong scalability and can add many magical functions. For example, the proponent of ERC-3525, the official Solv Protocol team, has developed a very useful capability on the basis of ERC-3525 to enable SFT to accommodate other digital assets of unlimited types and quantities. These digital assets can be FT, NFT, or other SFTs. This technology extension also allows dynamic transfer in and transfer out of assets to SFT, which makes SFT a flexible dynamic container that can almost be used to express various Web3 advanced digital assets, financial instruments and contracts, with huge application potential.

It can be seen that ERC-3525 represents a ubiquitous digital asset SFT, and meanwhile, it also has strong scalability, leaving room for various innovations.

Conclusion

If ERC-20 is a factory that can only batch produce the same product, then ERC-721 is a factory with a perverse personality. It can produce a variety of products, but each product can only produce one. ERC-1155 is a factory with multiple production lines, and each production line can produce the same product in batches. However, if you want to add a new type of product, you must add a new production line that is incompatible with ERC-721, which means that much of the current infrastructure is not applicable to ERC-1155.

The SFT using ERC-3525 is equivalent to an intelligent factory. It can not only produce unique products, but also mass produce similar products. It also allows channels and users to customize these products independently, and is compatible with ERC-721 standards. When adding new products, no structural adjustment is required.

From this perspective, ERC-3525 token standard, which is intelligent, universal and multi-functional, has the opportunity to become the top token standard of the blockchain in the future. With the advent of the Web3 era, it is expected that ERC-3525 SFT will open another trillion dollar market.

Author: Gate.io Observer: Byron B. Translator: Joy Z.

Disclaimer:

* This article represents only the views of the observers and does not constitute any investment suggestions.

*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.